Thursday, July 19, 2012
Challenging the Money Lenders
Money lending and loan sharks are not a new phenomenon. They are probably the second oldest profession in the world.
Where there is poverty you will always find those who are prepared to exploit the vulnerable and the desperate.
The island of Ireland has long borne witness to their activities. There are few working families that haven’t availed of money lenders and loan sharks. The cheque man used to call to our house every week. Between that and the pawn shop my mother reared ten of us.
The north was recently described as a ‘personal debt hotspot’ and in its annual report for 2011 the PSNI’s Organised Crime Task Force claimed that loan sharks are targeting citizens on benefits, small business people, those buying drugs and families trying to manage their way through poverty and disadvantage.
The report said that because the recession means that it is harder for someone with a ‘less than perfect’ credit rating to secure a loan from financial institutions, more and more people are consequently turning to ‘alternative lending options such as Social Fund and Budgeting Loans, Credit Unions, pawnbrokers, door step lenders, pay day loan companies and also illegal money lenders (‘loan sharks’)’.
In the north loan sharks often hold benefits books and Post Office cards as collateral against the loan, and any delay or failure on the part of the person holding the loan to repay it often leads to threats, physical assault, seizure of goods or the debtor being coerced into carrying out an illegal task for the criminal.
One example of this emerged recently in a court in Dublin where a mother of five received a suspended sentence after it emerged that she had been forced to turn her home – in this case her children’s two bedrooms - into a cannabis grow house because she owed money to a loan shark.
But this problem of money lending is not isolated to loan sharks.
Financial companies providing loans also charge exorbitant rates of interest.
This issue took centre stage this week in the Dáil when Sinn Féin introduced a Private Members Bill to set a cap of 40% on the amount that these companies can charge.
A recent survey from the Irish League of Credit Unions revealed that over 1.8 million people in the southern state now have just €100 to spare at the end of each month. That’s €25 a week! While 17 per cent of adults – which equates to 602,000 people –have absolutely nothing left for discretionary spending once all bills are paid.
These are the citizens who are being forced to borrow short term to pay utility bills, make mortgage payments or put food on their family’s table.
The Credit Union study found that 10% of households are turning to moneylenders to pay household bills, and it is likely that the real figure is significantly higher.
And many find that once caught in the money lending trap it is almost impossible to escape. Some of these licensed money lenders are charging up to 210% APR. They are making super profits on the back of hard pressed families.
And they can only do this because the Irish government has done nothing to tackle excessive interest rates. And why do they do nothing? The Minister of State Brian Hayes revealed all when he stood up in the Dáil and told us that the government intended to oppose our Bill. Why? Because he thinks that the ‘likely impact of applying a cap rate of 40% APR is that money lending would no longer be viable, licence renewals would not be sought and it would effectively close down the industry.’
Hayes then went on to describe how ‘money lending is an inherently expensive business’ and that ‘licenced money lenders service a high risk borrower segment.’
His defence of money lenders who regularly charge over 100% APR and sometimes over twice that had this blog’s blood boiling. It was a disgraceful and outrageous defence of one of the worst examples of financial exploitation of families desperately trying to manage a shrinking budget, mostly as a consequence of the new stealth taxes and charges that Minister Hayes government is responsible for.
It is also not representative of the European experience. A 2010 European Commission study identified 13 states that operated such a cap.
In Belgium for example the cap ranges from 10% to 19.5% APR. In France the range is from 5.7% to 21.6%. In Spain the rate is 10%.
In these and other states, politicians have decided that there is a limit to the amount of interest that licensed money lenders can charge, particularly when lending to low income families struggling under the weight of household debt.
Hayes claim that a 40% cap would ‘close down the industry is not borne out by the Polish example where in 2006 a cap of 20% was introduced on licenced moneylenders. Like Ireland Provident is one of the largest lenders in that market. It continues to trade profitably in Poland even after the introduction of the cap.
The Minister is wrong.
But the problem of debt and money lenders and of austerity have other more profound human implications.
The Central Statistics Office in Dublin last week revealed that the number of suicides in this state rose to 525– an increase of 7%. 439 men and 86 women are recorded as having then their own lives in 2011.
The President of the Irish Association of Suicidology Dan Neville TD acknowledged that these figures were ‘frightening but not surprising’ given the state of the economy.
The Suicide Support and Information System in its report on Monday made a clear connection between austerity and suicide. It revealed that of the 190 deaths in Cork from suicide 38.1% of the victims were unemployed.
The excessive interest rates being charged by licensed moneylenders are pushing hard pressed families further into financial stress and poverty. There is no moral or economic justification for the absence of a cap on interest rates charged by licensed moneylenders.
The Bill Sinn Féin brought forward proposed a cap of 40% which would be fairer to customers while allowing licenced lenders to operate on a sound commercial basis.
But the government parties voted it down and chose to defend the money lenders over the rights and needs of citizens.
The Labour Party TDs on the government benches should hide with shame. If they had any shred of compassion for those caught in the poverty and debt trap or any allegiance to the politics of Connolly they would have rejected the Ministers stand.
Instead they acquiesced and defended it. There were the usual crocodile tears about the plight of low and middle income families and those caught in the poverty trap but there was no stomach for standing up to the right wing ideology of Fine Gael.